A Better Grasp of Non-financial Risks

The European Fund Management Industry Needs a Better Grasp of Non-financial Risks — December 2010

Appendices

applied (for corporate-form investment funds, the involvement of the depositary in oversight of the pricing of the fund varies from country to country).

and accounting tasks of the company can, as in financial management, be delegated. The delegates are not always regulated for these tasks, and in this case their duty to the investment firm is contractual (the delegates can be seen as mere service providers). Tasks are generally distributed in the following fashion: Figure 2: Summary of tasks performed by each party Party Tasks Investment management firm Financial management Regulatory Reporting Compliance checks/fighting money laundering (Tracfin)

Certification of accounts and of financial information:

UCITS (in either company or contractual form) must keep accounts. Entering transactions makes possible a balance sheet, an instantaneous snapshot of assets and liabilities, and a profit and loss statement. Although producing this financial information is the responsibility of the firm managing the UCITS, the responsibility for certifying it lies with the auditors and, in the event of a UCITS formed as a company, with the board of directors, or, for a contractual fund, with the investment firm. To certify the annual financial statements of the UCITS, the auditor should, by tradition, certify the procedures put in place to produce the statements. When the net asset value of the UCITS is checked, the auditor examines the number and nature of the assets held in the portfolio and ensures that the valuation methods, which should comply with those listed in the prospectus of the UCITS, are used consistently. Administrative and accounting tasks are the other tasks for which fund management firms are responsible. In practice, as investment firms prefer to devote their resources to their primary specialty, these tasks are often outsourced. The so-called administrative Service providers—outsourcing of administrative and accounting work

Depositary

Custody + bookkeeping + bank Compliance checks Checks of rules for determining net asset value Checks of rules on minimum net asset value Pricing of assets in the portfolio of the UCITS Keeping accounts Centralisation of purchase/redemption orders Certification of accounts and of financial information Periodic valuation of the assets of the UCITS Compliance checks (regulatory) Specific missions Liability management

Registry holder

Valuator

Transfer agent

Auditor

The valuator: To process purchase and redemption requests from new and old unit- or shareholders fairly, it is necessary to price the entirety of the assets of the UCITS and to take stock of revenue and expenses. Each investor must pay the expenses associated with his or her holding period and, conversely, benefit from the product associated with that period. So management fees and custody fees, as well as other possible transfers, are funded. The UCITS III directive (article 38) states: “rules for the valuation of assets and the rules for calculating the sale or issue price and the re-purchase or redemption

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An EDHEC-Risk Institute Publication